Joel Beck

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Copyright 2007-2014

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Posts categorized "The Red Flag Series"

July 05, 2012

I'm continuing on in the Red Flag blog post series, and today am focusing on red flags in government investigation and prosecution cases (for the introductory post to this series, click here). In this post, I'll highlight some of the areas that I consider "red flags," meaning that these are areas in which particular attention should be focused by those that are under investigation by law enforcement or another government agency, or who have already been charged with a crime. The loss of freedoms and liberty, the imposition of probation or jail time, fines, and other sentence components handed down by a Judge can have a significant impact on your life and on future opportunities. To that end, the first red flag is not treating these investigations or charges as serious, because they are.

Second, another red flag is procrastination. We've all likely heard the saying along the lines of, "why do something today that can be put off until tomorrow?" That's procrastination at its core. And procrastination in government investigation/criminal defense matters can hurt you. The sooner that you hire a lawyer to help you, the better things will likely be. Over time, memories fade, it can become difficult to track down witnesses, evidence can be destroyed, etc., and other opportunities can be wasted. Putting off having someone help you in your case is a big red flag that should get your attention, and your response.

Third, operating under mistaken (bad) assumptions or beliefs is a big red flag. I recall a time I was sitting in court and observed another person in court - without a lawyer - receiving advice from a friend with respecting to resolving a criminal charge. The friend was apparently counseling the person to handle the matter in a certain way, which would, he believed, then allow the person to come back later and get things changed to resolve the case in a more favorable way. The problem was, both of these folks were seemingly operating under mistaken assumptions or beliefs about how the criminal justice process worked in Georgia. My point here is this: make sure you're getting accurate information to help you deal with the issues - seek the help of a lawyer. Don't operate under bad or mistaken information.

Finally, the last red flag I'll discuss today is working against your own interest. If you're under investigation or have been charged by the government, consider exercising your right to remain silent. Talk to a lawyer first before you talk to the government. Be careful about what you communicate about the situation to others through phone or email, through facebook, twitter or other social media, or even with in-person conversation. Things you say can be used against you, and sometimes it is best to just be quiet and get help.

This isn't a complete list of red flags in this area, but serves as a good starting point for today's discussion.The bottom line is simple: if you've been charged with a crime, or are under investigation by the government, the absolute best thing that you can do is to get a lawyer involved to help you.

July 02, 2012

I'm continuing in the red flag series today, highlighting red flag issues for small businesses (for an overview of the red flag series, see this introductory post). Whether you started a corporation or a LLC, formed a partnership with someone else, or even if you operate your business as a sole proprietor, there are some legal red flags of which you should be aware. Through proper planning and risk management, businesses can work to reduce their exposure to legal liabilities, and can reduce the personal liabilities of the owners. These are basic steps that an attorney can assist a business owner with, but business owners should also be aware of other red flag issues that might arise from time to time. This list is not exhaustive or complete, and there are other issues that certainly do arise from time to time.

First, if you are in business with another person or persons, the structure of that business and the contractual relationship between the owners is very important. A big red flag I often see is where folks have gone into business together but have failed to plan and not have put in place an owners' agreement (often called a shareholders' agreement for corporations, a members' agreement for an LLC, and a partnership agreement for partnerships). These documents plan for what happens when an owner wants out, when other owners want one owner out, when someone dies or becomes disabled, or when folks effectively stop working for the business. It is easier to put these agreements together and in place early on when everyone likes each other and still gets along. When something bad happens to fracture the relationship among the owners, it is very difficult to put agreements in place. In my view, it's not a question of whether these documents will be needed, it's a question of when they'll be needed.

A second red flag is inattention to business record keeping. If you have formed a corporation or LLC, the organizing documents and applicable law may require annual meetings of owners or members and regular director or manager meetings, etc. These requirements need to be satisfied, and they need to be documented. It is important to maintain the separate existence of the business entity and make sure it is not an alter ego of the owner(s), as failing to maintain proper business records may result in the expected limited liability protections not being effective to shield owners from personal liability.

Third, along the lines of business record keeping, business accounting is critical. Every business should have a relationship with a CPA from whom they can get tax and accounting advice, ensure that the accounting system and internal controls are set up properly, are functioning well for the business and are maintained in good order. Your CPA can also help with tax returns, payroll issues, and the numerous regulations relating to tax and accounting.

Fourth, business owners should understand the separate existence of their business and the of owners as individuals. To that end, when the business enters contracts, business owners need to understand how to bind the company, and not themselves individually, to the liabilities. Further, managers and owners who sign agreements and contracts on behalf of the company need to ensure that they have a good understanding of what those documents mean, and have them reviewed by the company's counsel when appropriate.

Finally, other red flags might be non-compliance with sales tax and other tax issues, business licensing issues, foreign corporation registrations where needed when doing business in other states, etc. Keep watching for more posts in the Georgia Business Law category for future, related posts in this area.

June 28, 2012

This is the fourth post in the Red Flag series. As I mentioned yesterday when discussing red flag issues in connection with broker compliance, the "red flag" language is used often when we speak of broker-dealer compliance issues. The regulators particularly like this metaphor, and often speak about the importance of recognizing and responding to red flags in a firm's supervision of brokers and associated persons. Doing so can certainly help keep a firm out of trouble, or can work to minimize problems when possible. As I've mentioned in the other posts in this series, this list of red flags is not an exhaustive or complete list, but it is a good starting point.

When I think of supervisory concerns, written supervisory procedures are at the foundation of the supervision process. And, from the regulators' perspective, they are critically important. So the first red flag that comes to mind is not having a good set of written supervisory procedures. The WSP should be customized and tailored to the business that the firm does and to the manner in which it supervises. And importantly, the WSP should not read as if it was written for (or stolen from) another firm because that other firm's name is sprinkled throughout the pages (Yep, I've seen that. More than once.)

A second red flag is failing to have the WSPs ingrained in the culture of the firm, letting folks know who is responsible for what, and how and when they are to carry out their assigned roles. Here, consistency is important. A lawyer I used to work with would often proclaim that "Consistency is the hobgoblin of little minds." I think that quote, or something similar, is attributable to Ralph Waldo Emerson. I get it. Consistently doing things for the sake of consistency doesn't add up to much. But in a broker-dealer, regarding supervision, consistency can be very important, especially for firms with multiple locations and managers. Ideally, a firm would likely want to ensure that its supervisory policies are consistently and uniformly carried out throughout the enterprise. When they are not, supervision can breakdown.

In addition to the flags that are easy to see such as numerous complaints, arbitrations and regulatory inquiries, other red flags in supervision that arise from time to time are:

* Failing to investigate and respond to outside business activity disclosures.

* Evidence of atypical financial trouble experienced by brokers, that might point to issues relating to a variety of problems, including something very serious as involvement in fraud, down to things like selling away or undisclosed OBAs, etc.

June 27, 2012

This is the third post in the Red Flag series. In the securities compliance and regulation area, the "red flag" language is used quite often. Typically, it is used in terms of making sure that broker-dealer firms and supervisors respond appropriately to red flags. In that regard, it is pretty heavily focused on supervision, or the lack thereof. But individual brokers or registered reps. should also be aware of the red flags that wave in front if them. Recognizing them, and responding to them appropriately, can help keep a rep. out of trouble, or can work to minimize problems when possible.

This is certainly not a complete or exhaustive list of red flags that a broker might see, but it is a good starting point.

First, reps. should be careful not to sign things without reading them. U4s and applications, compliance attestations, and other things change from time to time, and the information asked on them change as well. While you may not think you have anything to report to the regulators or your firm, the items asked on these forms do change, and you should review these documents carefully to ensure you appropriately and adequately completed it before signing. Each year, numerous brokers are disciplined because they failed to read and understand U4s and other registration docs, or they failed to disclose items that required disclosure.

Second, brokers should view any regulatory examination or investigation as a red flag. If you get a letter or phone call (or an in person visit) from FINRA, the SEC, or a state seeking information, be careful. Consider consulting experienced counsel early on for advice and guidance, and assistance in getting the exam resolved in the best manner possible. In my view, the earlier you get an attorney involved, the better. The seriousness of this matter is far too much to cover in a short blog post. For more info. on these, download my free ebook, A Stockbroker's Guide to Regulatory Investigations from www.brokerdefender.com.

Some other red flags that come up are these:

* Getting solicited by someone outside of your firm to engage in a business activity, whether that involves selling something that is characterized as not being a security, or something else. Remember that the outside business activity and selling away rules have teeth, and violations can lead to some significant sanctions.

* Having a client tell you to sign something on their behalf to speed something up, to get an application submitted in time, or whatever. Don't do it. Ever. It's just that simple.

* Another red flag is a customer who wants to limit information given to you, or a client that is difficult to work with. If they are refusing to communicate with you, won't share basic background information, including suitability info. about them, then it will be difficult for you to ensure that you're making suitable recommendations for them. If they don't trust you, you might need to consider showing them to the door and letting them work with another broker at another firm. Such a choice might prevent arbitrations, complaints, and regulatory exams.

*Discretion. Be wary of customers who want you to use discretion in their account, but have not signed written discretionary authority for you and have not had the broker-dealer approve their account as discretionary. These clients might, after a purchase turns south, conveniently tell a different story, leaving you in a bind with your firm and the regulators.

*Authorization. If you are dealing with a couple, understand that each person is different. While one individual might be able to act for both in a joint account, absent trading authorization, a broker should be careful about accepting trade instructions from one client for an account of another. If that's how the clients want to operate, get the right trade authorizations completed and approved by the firm. The same goes for trusts, business accounts, etc.

There are more red flags, and you can find a lot more information about common broker issues, rule violations, and more by using the categories section on the right side of the blog.

June 26, 2012

Like watching the flag system at the beach to tell us of dangers or warnings of which we should be aware, it makes sense to understand the "red flags" that we see when facing various legal issues in our lives. In today's post, I'll highlight some of the red flags that pop up from time to time in estate planning scenarios. Understand that this is not a complete list, but I'll highlight some of the more common issues.

First, probably the brightest red flag waves for those who have have failed to do any estate planning. Even if you don't have significant assets, planning is important. And, if you have minor aged children, planning is critical so that you can ensure that the appropriate folks will care for your children and manage your assets for their behalf should both parents decease. In addition to a will, other basic estate planning documents here in Georgia typically include an advance directive for health care and a durable power of attorney. More complicated options are available, but may not always be appropriate for your situation.

Next, be aware that once you do your planning, you're not done. You need to review your documents from time to time (I recommend at least once a year) to make sure that your wishes have not changed, and that the documents adequately represent your intentions and are sufficient to fulfill your plan. Along those lines, you should be aware of these red flags:

* Your asset level has changed significantly. Be aware as to whether that has moved your estate into a taxable situation where further planning might be needed. Understand that tax laws change, and that what might work for you today, might not be adequate the next year.

*Your marital status has changed. If you married, or divorced, your will likely needs to be changed. In fact, if you got married and your will did not state that it was made in contemplation of such, your will may very well be invalid under the law.

*You've had a child, or additional children whether by birth or adoption, and they are not included in your will. If your will did not state that it was made in contemplation of such, your will may very well be invalid under the law.

*You've made marks or changes on your will after you executed it, changing certain provisions or people, etc. Those acts may have resulted in your revoking the will rendering it invalid.

*Your choices for important roles, such as guardians, trustees, and executors, have changed.

*You opted to save some money on your will and did it yourself without a lawyer. Your will maybe perfectly fine, but it may not be. And, your will may not have been executed properly. You might wish to consider having a lawyer review your will or prepare another one for you.

*You have set up a revocable living trust (or some other trust) believing that it is the cure for all of your estate plan concerns, but have not done anything with it, have not transferred assets to it, and have not looked at it for years. Without property being placed in the trust, its value is pretty slim. You might wish to consult a lawyer.

There are other red flags to be wary of, I'm sure, but this list is a good starting point. If you have concerns or questions about the validity of your current documents, or have questions about where to begin your estate planning, consult an experienced attorney today.

June 25, 2012

Last week was our annual family vacation to the beach. We go to Seagrove Beach, Florida each summer with a large group of friends. And while I'm more of a mountains guy than a beach guy, the trip is always fun. While I now need a vacation from my vacation, I'm back in the office today working to get caught up on things, including the blog.

We had great weather this year. Seagrove was a little cooler than Atlanta was, we had a good breeze and the rain held off, too, raining on us just briefly on Thursday. The white sand was nice and the pool was cool and refreshing, but the ocean was rough at times. Many days the red flag was flying warning folks to be careful of rougher waves and currents. I heeded the warnings, teaching the kids about water safety and the flag system, and we made sure to be safe while playing around in the water. One of the local newspapers had an article about recent rough waves and currents in the area that had closed many beaches a week earlier or so, and detailing a large number of rescues by the lifeguards and fire department. The reporter had also interviewed several vacationers out on the beach and it turned out that many folks there simply had no clue about the flag system, and what the different flags meant, or even to look out for them. As I thought about that, I drew a parallel that many folks don't know what to look for in terms of metaphorical "red flags" in their own lives as it relates to legal situations. So a new blog series was born.

In the next several posts, I'll talk about "red flags" in various situations from broker-dealer and stockbroker compliance, estate planning issues, small business law, and criminal defense issues. I hope that this series will help folks recognize the red flags waving in their own situation, and then prompt them to respond to those flags. Stay tuned over the next few weeks for the red flag posts.

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